Fleckenstein has some interesting things to say in today's Rap. The link to the whole article:
siliconinvestor.com
Not that I agree with everything he says. For one thing, I don't think that AG is targetting the stock market exclusively, as BF seems to believe (and not a few on these threads, too). For another, I don't believe that the bubble in the market got to as disastrous proportions as BF has always seemed to think (though it could have, if allowed to continue to expand). I do agree with BF, however, that AG should have eased in mid-Dec rather than waiting. But there was a lot of political stuff going on back then wrt the elections, and it wasn't an easy thing to do.
Anyway, here is an excerpt:
Easy does it. . . Speaking of Easy Al, I would like to digress and just say that in my
opinion Greenspan has once again shown that he is only concerned about the stock market
and that bubble management is his game. Had he any real concern about the real economy
or any understanding of the same, he would have eased a small amount at the Dec. 15
meeting when it was apparent to anyone with an IQ over 40 that the economy was in
trouble. He chose not to do so, which surprised me, since I had expected him to cut rates.
But as the stock market appeared to be under more pressure, he gave us a surprise cut
today to try to prop up the market.
It appears that one of his delusions is that he can manage a $15-trillion stock market and
a $10-trillion economy all by himself. He was able to do that during the bubble but the
bubble has burst. That's not to imply that there won't be a certain amount of euphoria for
awhile and a willingness to overlook bad news as Easy Al passes out cocaine to all the
drunks.
But the important thing to recognize is that we are in the process of reattaching these
pieces of paper to the underlying businesses, the prices of which are still absurdly high
and the fundamentals of which are still deteriorating in many cases. Easy Al seems to want
us to believe that he will always be there to issue the put and that he has conquered the
business cycle. Anyone who has studied his record knows that his record on the economy in
terms of anticipating events, even after he became Fed chairman, has been very poor (see
"Alan Greenspan: friend or foe?").
Greenspan seems to think, as do his followers, that the only acceptable economic outcomes
are either boom, or less boom, where in the 15 minutes of less boom we correct the
excesses. In my opinion he is the most irresponsible Fed official ever to inhabit the Fed
and he is a menace to society.
What, does he have the panic button on speed dial?. . . I find it quite stunning
that Easy Al chose to "save" the stock market when the Dow Jones Industrial Average was
trading at 10,600 and change, after the average diversified mutual fund, as reported in
this morning's Wall Street Journal, lost just 1.67 percent. Not exactly what you would
call signs of major distress. Having said that, there obviously are a great deal of folks
hurting, but that was because they behaved in a somewhat reckless manner, speculating in
wild securities or using debt, or some combination of the two.
What Greenspan fails to understand is that all he's doing is continuing to make the ultimate
fallout from this worse and worse. So in my opinion if you are holding stocks, the
recommended thing to do is to use this rally to lighten up. If you are waiting to buy them,
you are just going to have to wait longer. Many people will be tempted to try to trade this
bounce, and maybe it will go on longer than I think and they'll be successful. But we have a
lot of unfinished business to do on the way down, and in my opinion we will get that done
before this year is out.
There were a couple of interesting developments in the news. A friend sent me an e-mail
regarding a story that the Home Appliance Association of Finland said in effect that retail
phone prices were at record lows there due to retailer discounting before Christmas
because of high inventory levels. This corroborates my view that a world of hurt is still
poised to come crashing down on wireless stocks and their component suppliers, especially
Nokia (NOK).
Those darn northern lights. . . Nokia, you will recall, was run up after --surprise,
surprise -- management gave a glowing assessment of the future at a recent analyst
meeting. I would assume it won't be too long before even the newest rookie to the
investment business learns that all management must be treated skeptically because of
their propensity to be overoptimistic at a minimum and in many cases, downright
untruthful.
A lot of people have been surprised at how fast the economy has weakened because they
don't understand that this is a bubble which has warped the economy. We have cited
countless examples of this phenomenon in the past, and my expectation has consistently
been that as soon as the market broke hard, a recession would start about 15 minutes
later.
Folks were starting to blame Greenspan for his six rate hikes, but that is not the problem.
The problem is that he fomented a bubble by behaving irresponsibly for a long time,
especially beginning in 1998, and most particularly with the irresponsible Y2K liquidity
injections that gave us the final blowoff to the mania.
Bubbles are dangerous because they create too much capacity. In this case, folks took on
too much debt and they warped the real economy. Malinvestment is a term that has been
used in the past to describe his process. The aftermath, as we have said repeatedly, is
always awful -- look at Japan or the 1930s in this country.
Revisionist historians are always fond of blaming the market breaks and economic
troubles on the rate hikes that loosely coincided with the bursting of the bubble, but it is
important to understand that it was the creation of the bubble that caused the problem, not
the hikes. The reason that is important to understand is because one has to behave
differently in the aftermath of a bubble than in a garden-variety bear market or a
recession.
Just to show you how clueless folks still are about this point, I happened to be watching
Larry King last night while I was working out and his guest, a woman named Susan, was
recommending that folks buy the QQQs because they were "down seriously." She said they
were $52 down from $520. Well, they were actually closer to $53 and change, but they
never traded at $520 (the high was about $114). It is simply remarkable the amount of
disinformation that continues to spew from people's mouths.
Currently indisposed. . . It hasn't really broken into the open yet how bad the
economy is, but I think it will prospectively. By way of anecdotal evidence, a friend sent
in a report that 450 orders for Mercedes were canceled in December at a Greenwich,
Conn., dealership. |
